How much homeowner insurance do I need, and why are there so many values for my home?
If your house were to burn down tomorrow, how much insurance would it take to rebuild it? Is it the number you see on Zillow, the county assessor’s value, or something else entirely?
This is a common question, and the answer might surprise you. Your homeowners insurance isn’t based on what your home could sell for—it’s based on how much it would cost to rebuild from the ground up.
Let’s break it down so you can understand how much coverage you actually need.
Why Your Home’s Insurance Value is Different from Zillow or County Assessments
Many homeowners look at their home’s market value or their Zillow estimate and wonder why their insurance coverage is different. Here’s why:
Insurance Companies Use Replacement Cost, Not Market Value
Your home’s market value includes factors that have nothing to do with rebuilding costs, like:
- Location (school districts, crime rates, desirability)
- Land value (which isn’t covered by insurance)
- Interest rates and local real estate trends
Different Home Values That Cause Confusion
When estimating your home’s worth, you might see three different numbers:
- Market Value – What buyers would pay for your home, based on real estate conditions.
- Zillow or Redfin Estimates – These use sales data and trends but don’t factor in construction costs.
- County Assessor Value – This is used for property tax purposes and is often lower than market value.
None of these numbers represent what it would actually cost to rebuild your home after a disaster. That’s why insurance companies use a Replacement Cost Estimator (RCE) instead.
How Insurance Companies Calculate Your Home’s Coverage (Coverage A)
Insurance policies list Coverage A as the amount needed to rebuild your home, not what you paid for it.
What Goes Into a Replacement Cost Estimator (RCE)?
Insurance companies use software that calculates rebuilding costs based on:
- Square footage (above ground and basement)
- Age of the home (newer homes cost less to rebuild)
- Construction type (ranch, two-story, colonial, etc.)
- Quality of finishes (hardwood floors vs. laminate, granite vs. Formica)
- Special features (custom windows, slate roofing, high ceilings)
- Current labor and material costs in your area
This number reflects what it would cost to rebuild your home in today’s economy, not what you paid for it.
How Economic Changes Impact Rebuilding Costs
Insurance companies calculate replacement costs in “normal” conditions, but disasters can drive prices up:
- Wildfires, hurricanes, and natural disasters create a demand surge for labor and materials.
- Supply chain issues (like those seen during COVID-19) increase costs unpredictably.
- Inflation raises the price of building materials over time.
If your insurance isn’t keeping up with these changes, you could be underinsured.
Why Home Market Prices and Insurance Values Often Don’t Match
When Market Value is Higher than Insurance Value
Your home might sell for more than its rebuilding cost due to:
- A desirable neighborhood (good schools, low crime)
- Land value (which insurance doesn’t cover)
- Limited housing supply in your area
When Insurance Value is Higher than Market Value
Sometimes, it’s more expensive to rebuild your home than to buy a new one, especially if:
- Your home is historic or custom-built with unique materials.
- You live in a rural or hard-to-access area, making construction labor more expensive.
- Building codes have changed, requiring expensive upgrades.
This is why insurance coverage is based on rebuilding costs—not market prices.
What About Zillow and the County Assessor?
Zillow, Redfin, and Real Estate Websites
- Designed to estimate sales price, not rebuilding costs.
- Use algorithms based on recent sales and housing trends.
- Do not factor in material and labor costs for reconstruction.
County Assessor Values
- Used for property tax assessments, not insurance.
- Often lower than real market values to reduce disputes.
- Breaks out land value, which insurance doesn’t cover.
How to Make Sure You Have the Right Coverage
If you’re unsure whether your Coverage A limit is enough, here’s what to do:
1. Monitor Local Construction Costs
Rebuilding costs change rapidly, especially after major disasters. Your policy should reflect current material and labor prices.
2. Ask About Inflation Guard Endorsements
Many homeowners insurance policies include automatic inflation adjustments to keep up with rising costs. If yours doesn’t, consider adding this feature.
3. Review Your Policy Regularly
Check your coverage at least once a year, especially if you’ve made:
- Home improvements (kitchen remodels, new floors, custom additions)
- Major purchases that need additional personal property coverage
- Upgrades to meet new building codes
If you’re unsure whether you have enough coverage, talk to an independent insurance agent to review your policy.
Final Thoughts: Get the Right Insurance for Your Home
Understanding how much insurance you need is crucial to protecting your home. The right amount is not your market value or Zillow estimate—it’s the actual cost to rebuild in today’s economy.
Key Takeaways:
✅ Market value and rebuilding cost are NOT the same.
✅ Zillow and county assessments don’t calculate replacement cost.
✅ Your insurance policy should reflect current material and labor costs.
✅ Regularly review and update your coverage to stay protected.
At Trailstone Insurance Group, we help homeowners find the best coverage at the best price by shopping over 40+ top insurance companies.
If you’re wondering whether your homeowners insurance is keeping up with inflation and rebuilding costs, contact us today for a free review.
Until next time, stay informed and stay protected.